2021 (7) TMI 1171 - AT - Income Tax

Addition of development expenses - surrender made by assessee in survey operation u/s 133A - During the course of survey, the assessee had surrendered many amount on various heads including, cash unexplained pertaining to Kartar estate and development cost of Kartar estate(project phagwarah) - AO has opined that the amount was income from other sources falling under the group of section 69A to 69 C and was not account of the business income - HELD THAT - In the present case the assessee was not able to demonstrate the source of investment made for development of Kartar estate ( s. no 4 of surrendered statement )from the books of account of the assessee or otherwise the source of investment .Instead of showing the source of cost incurred for development of project, the assessee had treated the same to be business income in the computation and it claimed set off against the same in the trading account . In our considered opinion , the initial onus is on the assessee to show the source of investment /cost incurred for development of project and thereafter only the same can be treated as business income and as per section 71 of the Act, the losses can be set off against business income only , needful was not done, hence the income disclose during the survey for the cost incurred for development appellate is required to be treated as investment made outside the books of account and is required to be held as income from any other sources. Hence the set off the business losses can not be permitted against the income from any other source.See M/S KIM PHARMA (P) LTD. VERSUS COMMISSIONER OF INCOME TAX. PANCHKULA AND ANOTHER 2013 (1) TMI 495 - PUNJAB AND HARYANA HIGH COURT - Decided against assessee.

Issues Involved:
1. Legality of the addition of ?14,15,788/- as development expenses of Kartar Estate.
2. Whether the surrendered amount of ?83,00,000/- should be treated as business income or income from other sources.
3. Justification of the business loss claimed by the assessee.
4. Validity of the CIT(A)'s partial relief to the assessee.

Detailed Analysis:

1. Legality of the Addition of ?14,15,788/- as Development Expenses:
The assessee challenged the addition of ?14,15,788/- confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] as development expenses for Kartar Estate. The CIT(A) concluded that the disclosure of ?83,00,000/- made during the survey was neutralized by including it in the closing stock to the extent of ?68,84,212/-, leaving an additional debit of ?14,15,788/- in the Profit & Loss account. The CIT(A) confirmed the addition of ?14,15,788/- and directed the deletion of the remaining amount, stating that the action of the Assessing Officer (AO) in adding back ?83,00,000/- was erroneous.

2. Treatment of the Surrendered Amount of ?83,00,000/-:
The primary contention was whether the surrendered amount of ?83,00,000/- should be treated as business income or income from other sources. The AO argued that the surrendered amount was not part of the normal business income and should be classified under sections 69A to 69C of the Income Tax Act, which deal with unexplained income. The assessee claimed that the amount was business income and should be set off against business losses as per section 71 of the Act. The ITAT held that the assessee failed to demonstrate the source of the investment made for the development of Kartar Estate, and thus, the surrendered amount should be treated as income from other sources.

3. Justification of the Business Loss Claimed by the Assessee:
The assessee declared a business loss of ?44,70,775/- and claimed that the surrendered amount of ?83,00,000/- was part of the development cost of Kartar Estate. The AO did not dispute the business loss but denied the set-off claim on the grounds that the surrendered amount was not business income. The ITAT concluded that the initial onus was on the assessee to prove the source of the investment for the development project, which the assessee failed to do. Therefore, the surrendered amount was to be treated as income from other sources, and the set-off against business loss was not permissible.

4. Validity of the CIT(A)'s Partial Relief to the Assessee:
The CIT(A) provided partial relief by deleting the addition of ?68,84,212/- and confirming only ?14,15,788/-. The ITAT upheld the decision of the CIT(A) regarding the addition of ?14,15,788/- and dismissed the assessee's appeal. The ITAT also noted that the revenue's appeal against the deletion of ?68,84,212/- was dismissed due to low tax effect, and this could not be revived. The ITAT emphasized that the assessee could not be worse off in his appeal and the benefit accrued could not be negated.

Conclusion:
The ITAT dismissed the assessee's appeal, confirming the addition of ?14,15,788/- as development expenses and treating the surrendered amount of ?83,00,000/- as income from other sources. The ITAT upheld the CIT(A)'s decision to provide partial relief and dismissed the revenue's appeal due to low tax effect. The judgment emphasizes the importance of the assessee's responsibility to demonstrate the source of investments to claim them as business income.

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